62 Voices on transformation 3 Transforming a high-performing company

Transforming a
high-performing company:
An interview with Roberto Setubal

The CEO of the former Banco Itaú—and now of

Itaú Unibanco—describes the problems of changing
a company that is set in its successful habits.
 63

Frederico Oliveira

It’s unusual for a CEO who has led a company

through more than ten years of strong growth
and financial performance to stop and consider
whether the business should be run differently
to meet future challenges. It’s even more unusual
for such a chief executive to initiate a major
transformation introducing a new way of manag-
ing this highly successful company—a trans-
formation involving its culture, organizational
structure, decision-making processes, and
leadership style.
 64 Voices on transformation 3 Transforming a high-performing company
Yet this is precisely what Roberto Setubal, the CEO
of Brazil’s Itaú Unibanco, launched in 2005. By
then, decades of steady organic growth and well-
chosen acquisitions had made the company,
founded in 1945 and controlled by the Villela
and Setubal families, Brazil’s second-largest
private-sector bank and one of Latin America’s
most profitable institutions.
In November 2008, midway into the change
effort, Banco Itaú and a domestic competitor,
Unibanco Holdings, agreed to a merger
forming one of the world’s top 20 banks by market
capitalization. Setubal, named CEO of Itaú
Unibanco Holdings, here speaks to McKinsey
director Frederico Oliveira about Itaú Unibanco’s
journey from a command-and-control manage-
ment model to an open and creative dialogue,
and what the merger will mean for this journey.
McKinsey: What role will the merger play in the
company’s emerging new management culture?
Roberto Setubal: I believe the merger with
Unibanco will accelerate the change because in
many ways Unibanco was ahead of Itaú in the
process of creating an open environment for dis-
cussion and reducing the role of hierarchy. If
one had looked at both banks ten years ago, the
cultural differences would have been more
visible, but during these years both banks have
been moving internally in the same direction,
albeit from different starting points. During the
merger negotiations, culture was probably the
most discussed issue because we both wanted to
make sure that the fit was good enough to
create a company with outstanding performance.
McKinsey: The economic crisis is high on
everybody’s minds at the moment. How will it
affect Itaú Unibanco?
Roberto Setubal: The Brazilian banks were
not at all directly involved in the subprime crisis,
1
Organisation
for so we will suffer only the consequences of the
Economic Co-operation slowdown of Brazil’s economy, a slowdown that
and Development.
will be much smaller than that in the OECD1
countries. I believe 2009 will be a difficult year,
but as Brazil’s economy adapts to the new
global economic situation, our internal demand,
which is quite high, will be an important
instrument for reactivating the economy. I believe
it can recover to a 3 or 4 percent growth level
in 2010 or 2011, even if we don’t see a recovery in
the OECD economies.
McKinsey: Let’s go back to the beginnings of
Banco Itaú’s transformation program. The bank
was performing very well. Why did it need to
change?
Roberto Setubal: The bank had been growing by
up to 25 percent a year for more than ten years,
and its performance was still very good in 2005.
Yet I began to realize that it had become such a
large and complex organization that we could not
continue managing it in the same centralized
way as before. Competitors were closing the gap
somewhat, and while we’ve always been very
good at implementation, innovation and the flow
of ideas within the company were not quite as
good as I thought they needed to be if we were to
maintain our competitive edge. The conclusion
was that we needed a higher-quality decision pro-
cess in order to prepare ourselves for a de-
manding future.
McKinsey: What was wrong with the decision
process?
Roberto Setubal: I had always been a very
hands-on CEO and the bank was much too cen-
tralized in my own person. Because the
management model hadn’t changed as the com-
pany grew bigger and bigger, I ended up
having more than 20 direct reports, creating an
impossible situation. At the same meeting, we
could discuss big issues, like a large investment
for expanding our operations, and small ones,
such as very basic product problems. What we
really needed was to delegate decisions
and create forums for different types of issues—
forums with the right people present and with
enough time for everybody to bring their
 65

Roberto Setubal

Vital statistics Career highlights Fast facts

Born October 13, 1954, Itaú Unibanco (1985– Member of Council of
in São Paulo, Brazil present) International Monetary
Conference and of
CEO, Itaú Unibanco
Education international advisory
(2009–present)
Graduated with committees of Federal
degree in production President and CEO, Banco Reserve Bank of New
engineering in 1977 Itaú (1994–present) York and New York
from Escola Politécnica Stock Exchange (NYSE)
of the University President, Banco Itaú
Holding Financeira Serves as vice president
of São Paulo, Brazil
(2002–present) of the Institute of
Earned MS in International Finance
engineering in 1979 Vice president of (IIF)
from Stanford University management council,
Served as president of
Banco Itaú Holding
Financeira (2002–present) National Federation
of Banks (Fenaban) and
Chairman of board Brazilian Federation
of directors, Banco of Banks Association
Itaú–BBA (2003–present) (Febraban)

Member of board of
directors, Banco Itaú
(1995–2003)

Citibank (1983–84)
Joined staff of then-CEO
John Reed, later served
as vice chairman
of individual banking

own ideas to the table and engage in open and
creative discussion. If you went to school in
the 1960s, you learned a lot of things that were
very modern for that time. But if you go to the
same school today, they teach you other things.
The world is moving and the company has to
move with it.
McKinsey: What are the main elements of the
transformation program?
Roberto Setubal: We are creating a
new management model, which involves the
organization’s structure as well as processes.
But to get this done, we need to change the
way people think and act. So the first part of
the transformation was to work on culture,
particularly how our people voice their ideas and
concerns. I believe it is very important to have
all the information and ideas on the table before
we make a decision, and I was looking for a
more open environment for discussion. We started
with top management and quickly worked our
way down to create bottom-up “pull” for change.
As this took off, I made it very clear that the
change was for the sake of performance, not for
fun—that it was for keeping our competitive edge.
So as a new culture began to take root, we started
to implement the foundations—the hard stuff—
66 Voices on transformation 3 Transforming a high-performing company
Here we were, proposing an environment
where executives could no longer hide
in their big offices but had to engage in open
debate with their teams
in terms of processes linked to the new culture.
This involved a redesign of the decision-making
and risk-management processes in order to foster
innovation, speed, and accountability. It also
included a revision of performance-management
systems—a revision involving very concrete
individual and group targets, compensation pro-
grams, and in-depth leadership reviews. In a
word, the way the bank actually works has been
redesigned to support the new culture that is
under development.
McKinsey: How did this start—what was the
very first step?
Roberto Setubal: The initiative was mine, and
the first step was to get the board on board.
First, we had to agree where we were and where
we wanted to go. This took a few months, and
some people were very skeptical to begin with.
Then we started to involve other levels of the
organization, and we had the big announcements
and ceremonies that play an important role.
McKinsey: What role have you played as CEO?
Roberto Setubal: The role of CEO is key. If you
want change to happen, you have to change
your own ways. I realized that the decision-making
process was a reflection of how I used to
manage the company. So if you want the company
to be more democratic, you have to allow
yourself to be challenged by others. You have to
commit yourself totally and really believe that
this is the right way to go. This is very difficult in
the beginning because sometimes I knew that I
could make the decision much faster on my own.
But once we created an environment of dis-
cussing and listening to what others were saying
and implemented a good process for making
decisions, I could delegate more and rely on five
or ten smart people with different backgrounds
to make better decisions than one person.
McKinsey: Changing an organization that
is doing well is usually very difficult. What has
your experience been?
Roberto Setubal: There was some resistance.
Some old-style people were saying, “We are doing
well; why should we change when we don’t need
to change?” It was very interesting that while the
top team agreed that we needed to improve the
way we made decisions, the moment of truth was
when we really started to bring the changes into
the day-to-day environment. It’s a very complex
endeavor to change a winning company. In
such a company, everybody is very proud, and they
feel that the way they have done things for years
is the right way. Some people were not able to go
through this process of change, although in
some cases they tried very hard, and eventually
left the company. Others were mentally pre-
pared and they wanted these changes to happen.
It was hard for many midlevel executives who
were used to being powerful and not having their
decisions questioned. Here we were, proposing
an environment where people should offer their
frank opinions and where executives could no
longer hide in their big offices but had to engage
in open debate with their teams. There are still
many people in the company who are struggling
to adapt to these changes.

McKinsey: When did people really understand
that the change was for real?
Roberto Setubal: When very important people
who reported to me and who could not adapt
started to leave the company, others began to
believe that change would actually take place.
In the past, we used to accommodate high exec-
utives whose performance was not fully
satisfactory. Never before had anybody at the top
level left the company. Those who had reached
that level went on and on until they retired. Now
colleagues with 10 or 20 years tenure left
because they decided that they couldn’t adapt to
the new culture. This was very hard for them
and the people around them, but as we move
forward on the path of change this becomes
more of a natural process. People understand that
you simply have to perform, and you not only
have to deliver results but you have to deliver them
in the right way.
McKinsey: There are also people requirements
for a successful transformation. How are you
handling demand for the kind of talent that would
help make the new management model a success?
Roberto Setubal: By hiring them. Indeed, one
of the objectives of changing the company culture
was to be able to attract the best talent. Itaú used
to be a closed career. It was only 10 to 15 years ago
that we started recruiting people from the
outside to the higher ranks of the company. We
always had good talent internally, and this is
probably more true today than ever before, but
when the bank is growing by up to 25 percent
a year there are a lot of new positions to fill in
67
order to continue growing at that rate. Today,
unlike in the past, I think potential hires perceive
Itaú as a rather attractive place to work—as a
winner in the marketplace, with good remuner-
ation and career prospects. That’s what
they see when looking in from the outside.
You have to meet these expectations so that when
people are here they want to stay. This has
not always been the case. Sometimes we brought
in good people who left the company after a
while because they felt they did not get a chance
to contribute in the way they could. The new
generation coming into the labor market has dif-
ferent expectations than the generation of
20 years ago. Talented people don’t come here just
to perform tasks. They want to offer their
ideas, discuss freely, grow professionally, and
contribute to the future of the company. We
have to create this kind of environment or we’ll
end up with the yes-man type, which is not
what we’re looking for.
McKinsey: What kind of changes in the organi-
zation’s design and processes did you use to
take the step from cultural change to operational
improvement?
Roberto Setubal: We have been redesigning our
decision processes in many ways to align them
with the cultural changes. I mentioned that I used
to have 20 direct reports. Today I have 10. To
make this possible, we reorganized our formal
systems. We have moved away from functional
areas to real profit centers. For example, we
used to have a vice president responsible for
credit. All business lines depended on this
68 Voices on transformation 3 Transforming a high-performing company
person for approving important credit decisions.
These decisions are now made by business unit
executives. This is in line with one of the goals of
the change program—to make decisions at the
appropriate levels and in appropriate forums,
which also frees up time for the top team to
discuss strategic issues. At the same time, we
created safeguards for the new credit decision
process so that the corporate center retained
strong control over it while allowing the profit
center to have a lot of flexibility.
This is a completely different way of doing things
because now the business unit leader has the
autonomy to design strategy in terms of pricing
and risk as long as it is in line with the
preestablished policies. The business unit leader
can make decisions together with the team in
a better way than before, when there was a very
centralized process and the person in charge
was overseeing too many businesses to be fully
involved.
McKinsey: What did you change in the
way the company evaluates, compensates, and
promotes its people?
Roberto Setubal: We always tried to be very
professional about people management, but
we had a closed and centralized system. We’ve
now made it more transparent, with checks
and balances built into the process so that they
would not only be in place but would also be
perceived as being in place. That is important
because without transparency people start
questioning how serious the process really is.
Today, a leader who evaluates a person must
justify why he or she is proposing to promote one
individual and not another. You can no longer
sit alone in your office for an hour and decide who
should get a higher bonus. You have to discuss
with others and listen to their opinions. This new
process is at the heart of modernizing the
company’s culture.
McKinsey: How have you balanced the pace
of change with the need to preserve the strengths
of the organization?
Roberto Setubal: We wanted to change, but
at the same time we wanted to maintain our
professional and performance-oriented culture.
In the days of command and control, we
operated like an army. Once a decision was made—
whether it was right or wrong—it would be
implemented immediately, and a few months later
you would see the result. We did not want to
lose this efficiency.
That’s why we’ve changed step-by-step and
been flexible about the timing of the changes. I
think that in order to find the right balance,
you have to be firm about the direction, but you
don’t have to go fast. We give people time to
adapt and gradually build confidence about the
process. As a result, I think we now have a better
decision process than we did before, without
having lost our ability to implement quickly and
efficiently.

McKinsey: Was it easier or harder to make
change happen in a family-controlled business?
Roberto Setubal: I don’t think the ownership
structure is a crucial element. What is critical
is that the CEO should really get involved, lead by
example, and basically walk the talk. In our
case, being a family-controlled company made it
easier in many ways, as I was the CEO and
also part of the family, which made my mandate
stronger. But I believe that the CEO is always
the CEO, and what counts is that this individual
should have the support of the board, which of
course represents the owners, family or not.
Frederico Oliveira is a director in McKinsey’s São Paulo office. Copyright © 2009 McKinsey & Company.
All rights reserved.
69
McKinsey: How far along is Itaú Unibanco
today in its transformation efforts?
Roberto Setubal: We started three years ago,
and I would say that we’ve come halfway
on a long journey. Our people realize today that
change is not just a concept—it’s not a question
of, “OK, let’s be nice and democratic and listen
to what everybody has to say.” They understand
that the new, open culture is about arriving at the
best decisions.
McKinsey: What’s your advice to other CEOs
contemplating a business transformation?
Roberto Setubal: You have to be patient,
persistent, and brave at the same time. Your
actions as CEO will be absolutely crucial, so
first of all you have to be very committed to what
you are going to do. If you really are, people
will follow you. If you think you don’t have to walk
the talk, it won’t work at all. The second
condition is that you have to be prepared to make
some tough people decisions, sometimes about
colleagues who are very close to you. This was not
an easy thing for me to do. But everybody has to
understand that the company comes first; we are
here to do what is best for the company.
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